Conducting a 401(k) audit can feel daunting—especially when you uncover more “gotchas” than guarantees. Every year, we feature the top three errors (= teachable moments) of that audit season. Today, however, we’re gathering lessons learned from successful 401(k) plan audits—so you can incorporate these winning strategies before your next audit.
Hint: “Successful” audits aren’t error‑free; they’re about how you tackle mistakes and prevent them from happening again. Here are three composite case studies, based on real insights from our team and reflections from long-time clients, showing how a few tweaks can lead to cleaner audits and happier employees.
*To maintain the confidentiality of our client relationships, we’ve taken real details across multiple companies to create anonymous composite examples. Because if we’ve seen an error, we’ve seen it dozens of times! So, you are not alone. 😉
Scenario 1: SalesCore
The challenge: A flaw in this sales-oriented company’s 401(k) plan design set it up for failure, thereby leading to distribution errors.
Root causes:
- Plan misalignment: The administrator used a default plan that didn’t reflect the actual make-up of the employees, which included a high percentage of commission-driven sales staff.
- Vesting blunder: The number of hours worked determined vesting, versus length of time working for the company. Since sales staff were not paid hourly, but rather a base rate plus commissions, the system never considered them vested, resulting in their missing out on the company match upon taking a distribution.
What changed: Firstly, SalesCore made appropriate corrections to make up for the company match due to the participants. And to prevent the error from ever recurring, SalesCore returned to its administrator to redefine vesting, then reset the plan document.
Impact:
- Zero vesting and match errors on the next audit
- Quarterly reviews to catch any other vesting errors
- Fewer “oops” notifications, boosting employee confidence
Scenario 2: Sunrise Tech Solutions
The challenge: Contribution errors that totaled 2% of the gross salary across pay periods.
Root causes:
- Payroll gaps: Not all pay codes were properly tied to 401(k) plan deductions.
- Spotty documentation: Change requests from participants lived in scattered emails, text messages and yes… post-it notes.
What changed: Sunrise standardized every deduction code and created a shared, audit‑ready folder where each fix is logged and reviewed. They also required that all plan change requests be documented in the shared folder. (No more leaving a sticky note on Payroll’s desk!)
Impact:
- 90% drop in contribution errors once payroll deduction codes were corrected.
- Robust audit trail—no more email hunts, with documentation stored in a secure folder.
- Audit as kickoff: Early collaboration with the audit team turned year‑end stress into an easy process.
Scenario 3: Valley Retail Collective
The challenge: They started receiving letters of rejection from the U.S. Department of Labor (DOL), which carried significant penalties if they didn’t course-correct—and fast.
Root causes:
- Procrastination: Waiting until the last minute to file, they scrambled to pull data together, causing them to submit Form 5500 late or without the audit (incomplete).
- Stale data: The longer they waited to begin the required audit, the more difficult it became to locate the necessary documentation to support the transactions being tested.
What changed: Valley Retail now prioritizes its audit, getting it done in the first quarter.
Impact:
- From dozens to zero rejection notices—and $0 in fines!—from the DOL
- Faster, smoother audits: Fresher data means documents are easier to find, and audits close in weeks, not months
Key lessons learned from successful 401(k) plan audits
- Fix errors at the source: Confirm your plan document aligns with your team and operations.
- Keep docs current: Quarterly reviews catch drift and errors early.
- Automate payroll processes: Standardize deduction codes so contributions are allocated correctly in the first place.
- Centralize corrections: A secure, audit‑ready folder saves hours of chasing emails—and helps you prepare for your next audit.
- Don’t delay: Prioritize your audit and kick it off early.
- Treat your auditors as partners: Transparent documentation and proactive Q&A transform the audit into a value‐add process.
Ready to make your next 401(k) audit a success story?
At Cassell Plan Audits, we’ve helped companies of all sizes—from car dealerships to retail chains—move from reactive firefighting to proactive compliance mastery. As objective third-party auditors, we can’t tell you what to do, but we are a partner and resource to make your annual benefits plan audit as painless and streamlined as possible.
Reach out today to learn how we can help support your company through its next 401(k) plan audit.
Photo by Mikhail Nilov.
